Venture Capitalism and Innovation in Development and Health - new business models required

The last few days I have been wondering what impact a venture capital fund specifically dedicated to development and health issues could have on pressing global issues such as malnourishment, HIV/AIDS or malaria. It might seem like a crazy idea since today's development & health is still mainly dominated by charitable approaches characterized by giving. However, social entrepreneurship characterized by the appliation of business techniques and principles is on the rise.

I discussed this idea of a development & health venture fund first on a Chiang Mai rooftop bar with Tim France, a friend who has built up a successful global NGO working on HIV/AIDS. We asked ourselves things like why there is still so little innovation in the development & health field despite decades of meager results, or why management capacities in this area or comparatively weak, or why nobody has taken on disrupting this multi-billion dollar industry or why there haven't been any mergers & acquisitions in this field.

Business Model Innovation in Development & Health

The reason why I find the idea of a venture capital fund interesting is because it could bring fresh live to an otherwise rusting industry. New, promising, but risky approaches with potentially huge impacts have to be tried out to disrupt this field that is experiencing a fatigue of decades of large amounts of almost sisyphus-like work. So let me oppose the traditional donor-funding approach to a complementary venture funding approach:

Characteristics of donor-funding in relationship to development & health projects:

* risk averse: failure is inacceptable
* as a consequence little innovation: funding of traditional approaches
* project oriented with start and end date
* fragmented
* relatively large administrative overhead
* limited support to management
* donors often drive/own the project process

Characteristics of venture funds in relationship to entrepreneurs & startu-ups

* entrepreneur-driven
* a strong (financial) interest of the VC to see a project succeed
* risk oriented: acceptance of x failures for 1 huge success
* innovation oriented
* growth oriented
* return oriented
* extensive help and management support
* sharing of VC's partner networks
* clear exit strategies

Clearly the former follows the model of providing subsidies while the latter follows the investment model. Of course the real world is not so black and white and we find the investment model also applied in the health and development field. However, I am not aware of any venture fund style investment model applied to this area. Yet, such a fund could be a very powerful complementary tool that could boost impact in the development field by fostering new and innovative approaches. Nowadays these approaches have virtually no chance to find funding.

Imaginary case:

Let us imagine an imaginary fund to boost impact in the development and health field: Richard Branson sets up a Global Health & Development Venture Fund worth USD 20 million. The fund would globally screen new and innovative business models that could potentially make a huge difference regarding some of the world's most pressing global issues (e.g. based on the Copenhagen Consensus). Selection criteria would be:

a) potential impact on a selection of global issues
b) potential financial sustainability & growth

Then the fund would invest USD 1 million in 20 start-ups. It would actively coach these ventures and provide them with management support as well as access to valuable partner networks. Because of the risky nature of the innovative ventures many of them will probably fail - yet, while having done good.

But failure is OK for venture capital funds if on the other hand they can get some of their ventures to grow exponentially. Let's say the goal of the fund would be to have 4 of the start-ups succeed while 16 fail. The 4 successful ones would have to show an impressive track record of growth, impact and financial substainability to really proclaim that the venture approach works - particularly if the other 16 have had little impact on development and health issues. But since the fund has invested in 20 risky and innovative high potential projects there is a big chance that some will make a real difference...

So does anybody out there have USD 20 million to give me in order to make a difference in the world?